Today sees Osbourne’s 8th Budget and the US Rate Decision
We open the day with most of the major currencies little-changed during overnight trade as the markets wait with bated breath for the monetary policy announcement from the Federal Reserve before committing to a firm directional bias.
The Federal Open Market Committee (FOMC) meeting is highly anticipated as investors are keen to assess whether the Fed are on course with their tightening forecasts, or whether they will lower their expectations of the number of rate hikes that will be possible this year.
Initial plans for three more hikes in 2016 were highly questionable as the start of the year introduced serious doubts due to a global economic slowdown and the drop in oil prices. However, the Fed have made progress in their mandate as unemployment has dropped to a low of 4.9% while core PCE inflation hit a three-year high at 1.7% in January, edging closer to the 2% target.
It is expected that there will be no change of policy today, but price action is likely to be dependent on how many rate hikes the central bank now anticipate this year and how hawkish Yellen’s accompanying statement on the domestic currency is.
US inflation data is due to print at lunch, but expect the markets to stay poised until the meeting this evening.
The upcoming Brexit referendum has reared its head again to send Cable plunging down to weekly lows of 1.41 yesterday as 52% of people voted to leave the European Union in a recent poll. The bearish dark cloud remains on top of Sterling as the possibility of a Brexit solidifies.
Markets will look to Chancellor George Osborne’s budget speech today to seek some reassurance as he presents the economic forecast for the year ahead, with details regarding GDP growth estimates, spending and borrowing forecasts. Today’s budget speech will be largely on savings and education, as George Osborne will try to stay away from anything that shows risk that will add to the global turmoil.
It was a very quiet day for the Eurozone yesterday. As a result, volatility in Euro pairs came from the broader market sentiment. That was certainly the case for GBPEUR as the pair fell to its lowest level for two weeks off the back of fresh Brexit concerns. It had opened at 1.28825 and fell to 1.2721 after a Sterling sell off. The pair did claw back some of the losses and opened this morning at 1.2743. The single currency traded sideways for much of the day and posted a small gain against the Dollar. The pair opened yesterday at 1.1101 and the Euro bulls came out slightly on top as EURUSD closed the day fractionally higher at 1.1105.
Data to watch: 12.30 UK Budget Report. 12.30 US Consumer Price Index (YoY & MoM)(Feb), Consumer Price Index Core (Feb). 6pm FOMC Economic Projections, Fed Interest Rate Decision. 6.30pm Fed Monetary Policy Statement & Press Conference.